Speaking of wages, today is Tax Day! YAY!!! Not. :-)
Happy Monday everyone, and as usual, this Monday’s post is brought to us by Stephen Hall. Thank you sir!
Some time ago I posted an article concerning who actually paid taxes, as opposed to whom the government often pretends pays the taxes. It is in a similar vein that it seems only appropriate to look at the wages themselves having examined how those wages are taxed.
Income itself is created in the form of wages for labor, rents from the use of land, and profits from the use of machinery, but were one to go into details of that one might end up with a thousand page treatise, if one were a Scottish professorial type.
Concentrating on just a person’s wages, we can address some fundamental concepts of the nature of wages and work itself and their connection to our current political climate and many of the frequent misconceptions surrounding the level of wages, poverty, and whether one makes enough to live or not.
The simplest concept of wages is that the amount of wages a person earns are set by their employer. This seems a fair assumption, you seek employment as a teenager and the boss says that they will start you out at $7.25 an hour, so you naturally become conditioned to the idea that the boss set your wages and it is up to him if you are going to get paid more.
Of course, the $7.25 per hour is the federal minimum wage and many states have higher set minimum wages, so to the uneducated and uninquiring mind it might seem that the government, not the employer, sets the wages. At a superficially juvenile level this would appear to be the case.
It is this naivete which induces the ill-educated to fall in line with such political movements like demanding the federal minimum wage be increased to $15 per hour and cry out for demands of a “living wage”.
Naturally, if one did not earn enough to live, they would not bother to work, so in a certain sense, every wage is a “living wage”. However, there is a significant threshold worth noting, that of the “poverty level”, which is defined by the government.
You will often see political hacks like Bernie Sanders stating how many hours a person earning minimum wage would have to work in order to support a family of four, and it is always a grossly erroneous exaggeration.
An easy calculation of a person’s annual income is simply to double their hourly rate and add the word “thousand” to the end, that is multiply by 2000, or 40 hours per week for 50 weeks, assuming a nice two week unpaid vacation.
Thus a single person earning only minimum wage would make at least $14,500, well above the $12,490 poverty level, and a young couple with no appreciable job skills making minimum wage would earn $29,000, modestly above the $25,750 poverty level for a family of four even if they had a couple of kids, and well above the $16,910 poverty level of two people.
However, we are not talking about the minimum wage and poverty, we are talking about the abstract concept of the determination of wages. As the reader already knows, because wages are set by the state and minimum wages are a modern phenomena, everyone already died of starvation hundreds of years ago having no minimum wage, therefore no income.
Obviously that titbit of facetiousness illustrates that government does not actually determine a person’s wages and the overwhelming majority of people do not make that minimum wage. This example is only made necessary because of the prevalence of such stupidity in the public discourse.
With that minor diversion aside, we are back to the less naive yet erroneous notion that a person’s wages are determined by their employer, or at best determined by the bargain struck between the employer and employee in a negotiation of the wage rate.
It is this idea upon which unions recruit members convincing them that the employer has an unfair advantage in bargaining power and the wages are pretty much a take it or leave it proposition of exploitation to which the proper response is the threat of collective violence or at a minimum public condemnation with threats of strikes and shutting down the entire business in a mutually assured economic destruction.
(Funny how decades ago those leftist who complained that the nuclear policy of mutually assured destruction, “mad”, was a horrible foreign policy in dealing with the former Soviet Union were at the same time advocating strikes to force companies to pay higher wages on the very same negotiation strategy.)
The basic idea being that the employer has the money, the employee needs the money, thus it is a simple purchase of work for money, which is in essence true.
It brings up the obvious problem of an unlimited government in that the state does not actually have money except that which it taxes from the people so that they are not spending their own money like the employer, thus the idea of public worker unions striking is against the taxpayer not their employer.
It also leads to a silly yet true observation by the socialists that the employer seeks to get more value for a person’s labor than the wages which they are paying that person spoken as an attempt at condemnation of capitalism itself.
However, this ignores that the value of the labor of the employee is augmented by the tools, equipment, and property of the employer and not merely the value of the labor by itself, and that the employer’s profits come from this added value of the use of their property to make that labor more valuable.
On the other hand, if an employee was not earning their employer at least as much return as the cost of their wages, the company would continually lose money and soon be out of business. Thus the employee would not be; he’d be unemployed. So the company better earn more money from having the employee than those wages cost or they are better off without that employee.
Which brings us to the true nature of the price of labor, commonly called wages or salary. Employment is, in a certain sense, much like every other product or commodity in that it is bought and sold on the open market in a capitalist society.
The traditional legal conception of “employment at will” is based on the recognition of employment as a “relationship” by legal standards, meaning that the arrangement is never considered permanent and either party can walk away from this arrangement at any time and for any reason. It is often expressed in legal circles that employment-at-will means that a person can be fired for a good reason, a bad reason, or for no reason whatsoever.
This misses the mark that it is a relationship of mutual assent as it omits that the employee is also free to quit or resign for a good reason, a bad reason, or for no reason whatsoever. By couching it in terms of the employer firing the employee it casts a distorted one-sided view of employment, painting the employee as weak and helpless and the employer as the one in control of everything.
This is certainly fuel for the employment law, discrimination industry to leach upon the wages of employment just as the unions, and state and federal bureaucrats and regulators to provide oversight, for a bit of their fair share of the pie. It fosters the inflammatory language of exploitation and victims, when in the abstract it would be difficult to cast someone as the victim of employment.
It is noteworthy that a biblical parable about a man hiring men to work at a set wage for the day then offers the same deal to other men to help work later in the day, but they all get paid the same regardless of how long they worked. Clearly, this man violated the equal pay for equal work principle upon which the liberal bible depends, but could illustrate the price increasing as demand increased in the market, though that was not the intent of the parable. The story is a prime example of the wages being set by the employer and the employee in a mutual agreement, the benefit of their bargain.
In a slave society, the factory for that labor is what is purchased and owned, then it is up to that owner to derive or wring as much labor from that person as they can. So the common slander of socialists of workers as “wage slaves” is an insult to every worker and every slave in history.
However, in a free market, in this case a free employment market, the economic forces of supply and demand always, and without exception, determine the price of goods and services. In the case of employment, the price of the services of labor are simply called wages.
It is not some single employer who determines the demand for labor, unless we are in a unique position of a factory town where there is only one employer. Such a situation where there is only one purchaser of a commodity economists call that a monopsony, as opposed to a monopoly where there is only one seller.
Just as a monopoly may drive prices higher, a monopsony will drive prices lower. The danger of an economy with only a few employers may drive down wages. This is the problem with certain work visas where the person’s admission to the country is tied to a single employer rather than a general condition of work, allowing such workers to be exploited at lower than market wages.
Company towns lost their monopsony power as the American population became more mobile and communication increased so workers could simply pick up and move to another town where the wages being offered were higher.
Absent such a monopsony, your wages are not determined by your employer but by your competition.
Commodities generally cost the same because of the competition to sell them, whether jeans, sodas, or any other commodity or service. The more the product is standardized the more uniform its price regardless of who produces it.
Unskilled labor is a simple standard product, the wages are pretty much the same no matter who is doing the work. Thus the inner-city black youth, the suburban high school student, the illegal immigrant, and even older unskilled laborers are all competing against each other to set the price for unskilled labor.
The more competition for jobs, i.e. the greater the supply, the lower the wages; the less competition for jobs, i.e. the lower the supply, the higher the wages. The largest increases in wages occurred with the coming of the black death, when millions of Europeans were killed off by disease, the competition for workers drove wages much higher.
If you remember the phrase in Dickens’s A Christmas Carol, they talk about the “surplus population”. That was a phrase used to describe the desirability of employers in having an excess of available workers in order to drive down wages.
